On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, (the “Relief Act”), which includes a relief package consisting of $900 billion in aid to small businesses and individuals impacted by COVID-19.
The focus of this Alert is to address changes made to the Paycheck Protection Program (PPP) through Title III – Continuing the Paycheck Protection Program and Other Small Business Support (Section 301-348) of the Relief Act.
PPP Loans - Take 2
The Relief Act provides for a new round of PPP loans (or PPP-2), containing provisions targeted to help smaller businesses with a second round of PPP loans and offering the potential for additional funding to Borrowers with original PPP loans. PPP-2 loans will be made available to both first-time qualified borrowers as well as to those borrowers who previously received a PPP loan earlier in 2020.
The following is a summary of the key guidance and issues:
PPP Eligibility Requirements for Borrowers to Receive a 2nd PPP Loan
Pursuant to Sec. 311, PPP Second Draw Loans, previous PPP loan borrowers can apply for an additional loan of up to $2 million, if they meet the following requirements:
- Have 300 or fewer employees
- Have used or will use all of the proceeds from their first PPP loan
- Had a 25% or greater reduction of “gross receipts” when comparing any quarter in 2020 to the same quarter in 2019
In addition, the following stipulations apply to this round of PPP loans:
- The PPP-2 loans cannot exceed $2 million
- The loan is based on 2.5 x average monthly payroll costs in 1-year prior to loan or calendar year 2019
- For Borrowers with NAICS codes starting with 72 (i.e., hotels and restaurants), the loan is based on 3.5 x average monthly payroll costs
- Similar to the first round of PPP loans, eligible spending must be comprised of at least 60% on payroll costs (compensation, health, retirement and state and local payroll taxes) over a Covered Period of either 8 or 24 weeks. See below for additional eligible costs.
- New PPP loans will be available through March 31, 2021
Borrowers of Initial PPP Loans May Be Eligible for Additional Funding
Pursuant to Sec. 312, Increased Ability for PPP Borrowers to Request an Increase in Loan Amount due to Updated Regulations, Borrowers are eligible to apply for additional PPP funding.
- The SBA has 17 days after the enactment of this Relief Act to issue guidance
- Eligible Borrowers who returned all or part of their original PPP loans may reapply for an amount equal to the difference between the amount retained and the maximum allowable amount
- Eligible Borrowers who did not accept the full amount of the PPP loan for which they were eligible, may request a modification to increase the PPP loan to the maximum amount permitted
- A Borrower of a PPP loan in 2020 that is eligible for an increased loan amount as a result of any SBA rule (Interim Final Rule) that allows for loan increases may submit a request for an increase in the loan amount even if the initial PPP loan has been fully disbursed to the Borrower.
501(c)(6) Organizations (e.g., Chambers of Commerce, Trade Associations, Business Leagues) are Now Eligible for PPP Loans
Pursuant to Sec 318, Eligibility of 501(c)(6) and Destination Marketing Organizations for Loans Under the PPP, the following rules apply:
- Have 300 or fewer employees
- Do not receive more than 15% of receipts from lobbying
- Lobbying activities do not comprise more than 15% of total activities and cost of lobbying activities does not exceed $1,000,000
Eligible Costs for Loan Forgiveness is Being Expanded
Costs eligible for forgiveness under the original PPP loan as well as PPP-2 loans include: payroll, health insurance, retirement contributions, mortgage interest, rent and utilities. The Relief Act added the following costs as eligible for forgiveness:
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Covered worker protection expenditure, operating or capital expenditures to facilitate the adaption of business activities of an entity to comply with COVID-19 federal, state or local government health and safety guidelines.
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Covered supplier costs: An expenditure to a supplier that is essential to the operations at the time at which the expenditure is made and is made pursuant to a contract, order, or purchase order.
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Covered operations expenditure, payment for any business software or cloud computing services that facilitates business operations, product or service delivery, payroll processing, human resources, sales and billing functions or accounting for supplies, inventory, records and expenses.
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Covered Property Damage Costs: Cost related to a property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.
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Payroll Costs: Costs eligible for forgiveness were amended to include insurance payments for group life and disability. The Relief Act also inserted vision and dental insurance into the law, though prior SBA guidance permitted those costs under the category of health insurance.
Borrowers of PPP Loans of Not More Than $150,000
The SBA has 24 days after the enactment of this Relief Act to create a one-page loan forgiveness certification form for loans of $150,000 or less that require the eligible borrower to:
- Provide a description of the number of employees the Borrower was able to retain because of the PPP loan
- Provide an estimated amount of loan spent by the Borrower on payroll costs
- Provide the amount of the total PPP loan
- Retain employment records for 4 years following submission
- Retain other records for a 3-year period
Other Items:
The Relief Act repealed the requirement that Borrowers reduce the amounts of PPP loan forgiveness by the amount of EIDL grants.
The Rudler, PSC Team continues to monitor ongoing updates to the PPP Program. To better understand how the changes impact your unique situation, please contact your Rudler, PSC advisor at 859-331-1717.
Disclaimer: Please note this is based on the information that is currently available and is subject to change.
